The Difference Between Annuities And Life Insurance

Feb 28, 2019

Both annuities and life insurance should be considered in your long-term financial plan. While both include death benefits, you buy life insurance in the event you die too soon and an annuity in case you live too long. In other words, life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met, while annuities guard against outliving your assets.

Comparing deferred and immediate annuities

There are two main types of annuities-deferred and immediate-and two main types of life insurance-term and whole life.

Life Insurance

Annuities

Term life

Whole life

Deferred annuities

Immediate
annuities

Main reason for buying it

Provide income for dependents

Provide income for dependents or meet estate planning needs

To accumulate money in a tax-deferred product

To assure you don’t “outlive your income”

Pays out when

You die

You die, borrow the cash value or surrender the policy

You make withdrawals

One period after you buy the annuity, stops paying when you die*

Typical form of payment

Single sum

Single sum

Single sum or income

Lifetime income

Buyer’s age when it is typically bought

25-50

30-60

40-65

55-80

Accumulates money tax-deferred?

No

Yes

Yes

Yes, but only in the early payout years

Pays a death benefit?

Yes

Yes

Yes

*payments continue if the annuity has a guaranteed-period option that hasn’t expired at the annuitant’s death